What Are The Implications Of Membership Of

The European Union On Regional Development In The UK Essay, Research Paper

Large-scale disparities in prosperity between British regions first became a subject of concern for policy makers in the late 1920s (McCallum 1979). Since that time regional development strategies have been an integral part of government policy, though the weighting they have been afforded has varied considerably. Britain’s integration into a wider Europe, beginning with membership of the EC in 1973 and continuing with the Single European Act of 1986 and the 1991 Treaty of European Union (the Maastricht Treaty), has had and will continue to have significant effects on British regional development problems and policies. Before the nature of these effects can be discussed, it is important to look at the reasons that variations in levels of regional development are seen as a problem. While the issue of equity for its own sake is the most immediately obvious ground for wishing to spread development evenly throughout the country, there are also potential political, strategic and environmental advantages (Armstrong 1985). By far the most compelling argument in favour of promoting even development, however, is economic. This argument is based around the fact that, in times of growth in demand and productivity, reasonably full employment is created in the most prosperous regions, leading to anti-competitive practices such as excessive wage increases. These practices spread throughout the country creating so called ‘cost-push’ inflation. When deflationary policies are introduced, usually increased taxes, reduced public spending and raised interest rates where Keynesian demand management is applied, demand is curtailed and the economy goes into recession due to unacceptable deflationary burdens, high unemployment being the most notable of these. The poorer regions tend to feel the first effects of recession due to their relatively weak economies and, in the case of the United Kingdom, due to the predominance of heavy industry rather than consumer goods and services in the less prosperous North and West. Also, the inability of less developed, net importing regions to live with a permanent balance of payments deficit will reduce the ability of more developed regions to export (Jensen-Butler 1987). Uneven distribution of economic development, therefore, tends to adversely affect the economy as a whole as well as widening the regional gap which was largely responsible for its initial creation. While these arguments are commonly accepted, regional policies within Britain have often proved ineffective in narrowing the regional divergence. London and the South East remains by far the most prosperous area of the country, while Northern Ireland, Merseyside and the Highlands of Scotland are among the poorest regions in Europe. The likely implications of EU membership for this existing pattern of development must now be discussed. Jensen-Butler (1987) identifies five levels of international economic integration. These are: “(1) Free-trade area where there are no trade barriers between member states and no common external trade policy. (2) Customs union, which is a free-trade area with a common external tariff. (3) Common market with free movement of factors of production. (4) Monetary union where a common currency is established. (5) Economic union where macro-economic policy is made by a central authority.” (p.214) As integration proceeds from stage (1) through to stage (5) (the EU is currently between stages (3) and (4)), barriers to free trade are progressively eroded. As such factors as tariffs and exchange rates generally facilitate protection of poorer regions (Cheshire et al. 1991), the removal of such barriers allows free factor mobility and puts “different production systems, characterised by highly dissimilar productivity levels in direct competition” (ibid, 296). While there is very broad agreement that the immediate effect of this will be a widening of the productivity gap between regions, there are those who argue that in the long term integration will facilitate regional economic convergence. This essentially neo-classical contention is based on the premise that, with increasing integration, inefficient production is rooted out, providing aggregate benefits for the union as a whole, while factor mobility facilitates equalisation of regional factor payments (Jensen-Butler 1987). In this theory the more efficient resource allocation thus engendered will then induce both aggregate growth of the union economy and a reduction in regional inequality (ibid). The experience of Britain and other nation states, however, refutes the assumption that a lack of trade barriers and therefore infinite theoretical factor mobility within a given area leads inevitably to the removal of regional factor payment differentials. A more likely scenario gaining much acceptance within the literature is based on a Myrdal-Hirschman model of cumulative regional development (ibid). Generally speaking, those regions in an advantageous position within the system due to such factors as well developed infrastructure (roads, airports, communications etc.) and skilled workforce will attract the most investment, leading to high productivity increases, in turn leading to significant in migration (EC 1990). The effect is to increase the size of the regional market and tax base, allowing further improved infrastructure and inter-industry linkages which in tu